This report responds to your letter of December 19, 1985, asking that we update our report, Potential For Excess Funds in DOD (GAO/NSIAD-85-145, Sept. 3, 1985). In particular, you requested (1) updated estimates of any inflation dividend--which we define as the appropriation of funds for inflation in defense program costs which exceed the amounts necessary to finance actual inflation--and (2) updated information on Department of Defense (DOD) unobligated balances. POTENTIAL INFLATION DIVIDEND In our September 1985 report, we estimated the inflation dividend between fiscal years 1982 and 1985 for all DOD purchases. This report extends our estimates of dividends through fiscal year 1986. However, the updated estimates include only DOD's non fuel purchases since updated estimates of fuel price decreases are not yet available. Table 1 shows that the estimated inflation dividend for non fuel purchases was $32 billion for fiscal years 1982 through 1985 and $39.5 billion for fiscal years 1982 through 1986. of B-219975 the $39.5 billion, $14.2 billion came from a special multiplier used for major weapon systems. Table 1: Comparison Between Estimates of the aFor fiscal years 1982-85; estimate as of Sept. 1985. bFor fiscal years 1982-86; estimate as of March 1986; estimate does not include any funding decreases mandated by the Balanced Budget and Emergency Deficit Control Act of 1985 (see p. 10 of app. I) or reductions due to specific congressional inflation adjustments (see pp. 2 and 3). CUpdated fuel price forecasts were not available. We could not determine the precise amount of unneeded funds still available in DOD. During fiscal years 1982 through 1986 Congress has routinely reduced DOD budget requests. Although some of the reductions were related to inflation savings, few reductions were explicitly linked to inflation in any official congressional statements. In fiscal years 1985 and 1986, however, 1Because DOD contends prices of major weapon systems increase more rapidly than the prices of other goods, inflation for major weapon systems was budgeted at a rate 30 percent higher than general inflation. (See p. 6 for additional discussion.) 2 |